When investing in dividend stocks, it might make more sense to look at potential dividend growth than actual payouts. Myles Zyblock, chief institutional strategist at RBC Dominion Securities, looked at Canadian stocks within the S&P/TSX 60 index that have payout ratios below 70 per cent, implying that there is considerable room for companies to raise their payouts. He then narrowed the list down to 20 names.
You might think that dividend-seeking investors would turn away from such a strategy because the dividends simply aren’t robust enough. Yet, according to Mr. Zyblock, this dividend strategy has a compound annual growth rate of 15.1 per cent. That beats a general dividend strategy by 2 percentage points a year, and it beats the index by more than 10 percentage points a year.